Crown Resorts no longer suitable to hold Sydney casino licence, inquiry hears

Counsel assisting the inquiry leaves no doubt the company will need to make radical changes and James Packer will likely need to divest his shares to hold on to licence

Counsel assisting an inquiry into Crown Resorts has recommended that the company be found no longer suitable to hold a casino licence in New South Wales because of the influence of its largest shareholder, James Packer and his private company, over its operations.

The inquiry is being chaired by the former supreme court judge Patricia Bergin SC. Wednesday marked the start of a three-step process: counsel assisting makes submissions on what the evidence shows and possible findings; Bergin will then make recommendations to the Independent Liquor and Gaming Authority by 1 February; and then the authority will rule on whether Crown should keep its licence.

Counsel assisting’s views are usually highly influential on commissioners and Adam Bell SC left no doubt that Crown Resorts faces serious questions as to its suitability.

By the end of the first day he said that “the China incident” alone, which led to the arrest of 19 Crown staff by Chinese authorities in 2015 was sufficient to answer the question of suitability to hold a casino licence.

He said it had demonstrated “disastrous failures” of management and governance.

He said the board had failed to manage risk and that the dominance of Consolidated Press Holdings, Packer’s private company through which he holds 36% of the shares in Crown, had led to “the insertion of informal reporting lines to a VIP working group”.

That group had failed to report to the board on the escalating risk in China in the lead-up to the arrests.

Instead, the risks were only shared among the senior executives responsible for the VIP business and one director, Michael Johnston, who worked for CPH. Although Johnston said he raised it at a board meeting, Bell said the evidence pointed to him failing to do so.

Recruiting Chinese citizens to gamble overseas is a breach of Chinese law. A disregard for the law of another country and putting staff at risk of arrest would raise serious suitability questions for Crown, the inquiry heard.

Bell said some board members did not even know that Crown had staff in China.

“There have been suggestions that this is the fault of one or more individuals but I submit that it was far more profound than that,” Bell said.

He submitted there had been a “failure of culture” at Crown. He said Crown directors had failed to communicate the company’s appetite for risk to staff and even after the arrests, had failed to hold a comprehensive review of the failures, because of legal advice that it could add fuel to the class action being brought against Crown.

Earlier in the day Bell said Crown would need to make radical changes to its board and management if it was to have any chance of holding its licence, and that James Packer will likely need to divest his shares, in order to hang on to the Sydney licence.

“The conduct of Crown cannot be separated from the conduct of Consolidated Press Holdings and the Crown board, which have shaped and continue to shape the conduct of the company,” Bell said.

He pointed to evidence from executives that they had complete loyalty to Packer and submitted that often they put his interests above those of the company.

But by the end of the day, Bell noted that many of the directors who were on the board during the period immediately before the arrests remained as directors and that key executives were still employed at Crown.

He particularly singled out Johnston.

“Johnston caused harm to Crown Resorts and even more serious consequences for the staff in China,” he submitted.

Determining the suitability of a company is not straightforward and will no doubt be one of the key arguments raised by Crown’s lawyers.

Bell submitted said that in determining the question of the suitability of the company, Bergin should look to the decisions of the Massachusetts Gaming Authority, which had said the character of a company was defined by its key management, board and controlling shareholders.

The character of those individuals was to be assessed on the basis of “the sum total of their actions”, Bell said. A company’s suitability can “ebb and flow” depending on the key personnel involved.

“It might be possible to remove a stain from the company by removing the people responsible for wrongdoing,” Bell said .

As the major shareholder, the inquiry heard that Packer had extraordinary access to executives and to financial briefings under a secret controlling shareholder protocol, even after he resigned from the Crown board.

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Bell told Bergin that she had heard evidence of how the key executives responsible for the VIP business at Crown Melbourne – Barry Felstead, Jason O’Connor, Ishan Ratnam and Johnston, reported directly to Packer, providing weekly VIP updates, and that a VIP working group comprised of these executives set the strategies for the China business.

This group reported to CEO monthly meetings but provided more information directly to Packer than it did to Crown’s formal management structures and the board, he said.

The other counsel assisting, Naomi Sharp SC, will make submissions about allegations of money laundering and dealing with junket operators with criminal ties later in the week.

After that, lawyers from Crown will make submissions. These are expected to centre on the changes Crown has made to its governance since the inquiry began and any further changes it is prepared to make.

Despite counsel’s view that it should be found unsuitable, Crown is still planning to open its high roller casino at Barangaroo in December.

Meanwhile, a court has fined the Crown director Harold Mitchell $90,000 for breaching his duties as a director of Tennis Australia during broadcast right negotiations in late 2012.

Mitchell “stepped over the line in his dealings with Mr Bruce McWilliam, group chief legal and commercial director” of Kerry Stokes’ Seven West Media, the federal court judge Jonathan Beach said in a judgment handed down on Wednesday.

He said the contraventions he found were “far narrower in scope” than alleged by the Australian Securities and Investments Commission, which had asked for a $150,000 fine. The maximum is $200,000 per breach.

He ordered each side to pay its own costs, putting both Mitchell and Asic on the hook for hundreds of thousands more each.

Contributor

Anne Davies

The GuardianTramp

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